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Gerard O'Neill, Chairman of Amárach Research, commenting on the latest Daft research on the Irish property market.

An American friend was telling me recently about his grandparents and their crazy habit (in
his opinion) of always keeping a lot of cash in the house. Under the mattress, so to speak. He
reckoned it was a consequence of their having lived through the Great Depression and witnessing
over 3,000 banks fail, wiping out a generation's savings in the process. Such formative experiences
in our youth tend to shape our values and behaviours over the rest of our lives, long after the
experiences have passed.

Here in Ireland, a generation of young people under 30 will never look at property the same way
again as a result of what they are now experiencing - and will experience over the next few years.
This is not a storm that will pass, loosening a few slates on the roof. Rather, we are experiencing an
earthquake that will transform key features of Ireland's economic landscape beyond recognition.
As with all such economic upheavals there are social, political and cultural consequences as well.
One such consequence that I anticipate is a permanent demise in the Irish love affair - infatuation
even - with property ownership. Especially debt-funded ownership. I would go further and agree
with futurist Kevin Kelly (www.kk.org) that there's a big future for renting - not just property but
also for entertainment, furniture, clothes, cars, etc. Renting is the new buying.

The appetite for ownership is a function of scarcity: when ownership is effectively the only
guarantee of access to the benefits of a particular good or service then other arrangements are
grossly inferior. But when the supply of something becomes abundant - even excessive relative
to underlying demand - then ownership becomes unnecessary. We don't own the roads we drive
on nor the world wide web that we surf yet we have more or less unlimited access to all we want
when we want it. An ironic consequence of the recent failures of finance-fuelled capitalism may
well be to undermine forever the foundational faith in private property ownership as a source of
wealth and freedom. Though 'ironic' doesn't quite do justice to such an outcome.

So much for the future, what of the present? An appropriate description of many economic
indicators right now is summed up by the phrase 'cliff-diving'. It's a phrase economists have taken
to using to describe everything from interest rates to trade volumes to employment to consumer
spending. This is my fourth recession in my adult life and I can safely say I have never witnessed so
many indicators change direction so fast nor move so swiftly in the wrong direction. We're living
in a whiplash economy, brought to a sudden stop by a wall of fear.

One feature of cliff-diving indices is that the rate of decline accelerates. Maximum velocity is characterised by
double digit figures. So it is with rents in Ireland: the year-on-year rate of decline in the Daft.ie National Rent Index
accelerated from -3.2% in Q3 2008 to -12.2% in Q4 2008. The January 2009 rate of decline stood at -13%. Supply is
outpacing demand.

This is Ireland's first middle class recession - professionals are joining unskilled workers on the dole queues. If
anything, it is the Irish middle class who are bearing the brunt of this recession as they are the ones with the most
debt - typically geared to both incomes of working couples. Long gone are the days of a middle class comprising
working husbands and stay-at-home mums: since 2001 the majority of married women of working age in Ireland
have been in paid employment. That was how the middle class fuelled the expansion of the buy-to-let market, aidedand-
abetted by our over-leveraged banks.

Now it is middle class areas that are being hardest hit by the collapse in rental prices. The fastest declining rental
markets in Q4 2008 were South Dublin City (-10.0%) and South Dublin County (-15.2%). The latter was the fastest
declining area in the country. Of course, so far we are looking at this from the perspective of the landlords. How
many of them are there? A survey last year by Amárach Research for the Irish Banking Federation showed that 15% of
adults aged 25-65 own a property other than their own, down from 20% the previous year. Not all of these owners of
second homes and apartments rent them out - so an even smaller minority are actually exposed to the vicissitudes of
the rental market. That said, the Government's ingenious plan to sharply increase taxes on people who own a second
home might just have a few 'unforeseen' consequence: such as forcing those not renting out their properties to either
rent them out or to sell them for whatever they can get. Expect falling rental prices and falling house prices to follow.
Not to mention falling tax revenues from house sales (that are pro-rata to sales prices). But these are unforeseeable
consequences don't forget.

What then about the renters? They are spoilt for choice, pure and simple. Moreover, with the banks afraid to lend and
workers afraid for their jobs then the prospects for rental demand look good. And not just for one and two bedroom
apartments either but so also for 3 and 4-bedroom houses. Expect a lot of people formally-known-as-middle-class to
'downshift' from the mortgage-indebtedness of home ownership to the liability-freedom of renting.

Such are the seismic economic and social shifts now underway. Indeed the traditional snobbery and stigma
associated with renting ('a waste of money' as they used to be say before the onset of industrial scale negative
equity), will disappear faster than 100% mortgage offers. I wonder what stories this generation of renters will tell their
grandchildren?